This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
An application when once made is a finality,1 and can be changed afterwards only by the consent of the parties.2 If the debtor has once made a valid appropriation of a payment, neither he3 nor the creditor 4 can change the appropriation thus made without the consent of the other. If it is understood that payments by one person are to be applied to an account due from another, payments made on such account can not be subsequently applied by the creditor to another account, though he might at the outset have refused to accept payment from any person except from the original debtor.5 If a payment has been made on an entire contract, it can not afterwards be applied to specific items.6 If the debtor has made an appropriation of a payment, such payment is in law regarded as being applied as the debtor directs, even if the creditor has in fact attempted to make a different application thereof.7
11 Schoonover v. Osborne, 117 la. 427, 90 N. W. 844; Capen v. Alden, 46 Mass. (5 Met) 268; Sawyer v. Tappan, 14 N. H. 352.
12 Law V. Blomberg (Neb), 91 N. W. 206.
13 Schoonover v. Osborne, 117 la. 427, 90 N. W. 844.
1 See f Sec. 2838 et seq.
2 Patch v. First National Bank, 90 Vt. 4, 96 AtL 423; Wetmore & Morse Granite Go. v. Ryle, - Vt - , 107 Atl. 109.
3 Wait v. Homestead Building Association, 81W. Va. 702,95 S. E. 203.
1Jackson v. Bailey, 12 111 159; Brown v. Burns, 67 Me. 535; Hanly v. Pott*, 52 W. Va. 263, 43 S E. 218; Wait v. Homestead Building Association, 81 W. Va. 702, 95 S E. 203 (obiter).
2 Wait v. Homestead Building As-vociatton, 81 W. Va. 702, 95 S. E. 203 (obiter).
3 Dickinson v. Marrow, 14 M & W. 713; Brown ▼. Burns, 67 Me 535; Hub-bell v. Flint, 81 Mass. (15 Gray) 550.
4 Massachusetts. Spinney v Freeman, 230 Mass. 356, 119 N E 798.
North Carolina. Miller v. Womble, 122 N. Gar. 35, 29 S. E. 102.
A valid appropriation of a payment by the creditor is final and can not be changed thereafter without the consent of debtor and creditor.8 If the creditor has seized property belonging to a surety under a power conferred in a mortgage and has sold it and applied the proceeds to the payment of the mortgage debt, he can not alter such application as against the debtor, although such surety has obtained a default judgment against the surety for the conversion of such property.9 If a mortgagor has consented to the application of a part of the proceeds of mortgaged realty to another debt which he owes to the mortgagee, he can not thereafter demand that such proceeds be applied to the mortgage debt.10 If a creditor has made a general application of a payment, on the theory that the account is a continuous one, he can not alter such application and apply the payment to the later items.11 A was indebted to B on a note and subsequently they had open mutual accounts, A furnishing produce which B sold. B applied the price of such produce to the open account. After B's death his administrator was not allowed to change the application of such payments to the note, leaving the open account barred by the Statute of Limitations.12
North Dakota. Herold v. Hill, - N. D -, 169 N W 592.
Pennsylvania. Kann v. Kann, 259 Pa. St. 583, 103 Atl 369
South Carolina. Reid v Wells, 56 v. Car 435, 34 S. E 401
Washington. Simpson v Combes, - Wash - , 182 Pac. 566.
West Virginia. Wait v. Homestead Building Association, 81 W Va 702, 95 S E 203 (obiter); Farr v Weaver, - W Va - , 99 S. E. 395 (obiter)
5 National Cash Register Co v. Bonneville, 119 Wis 222, 96 N W. 558.
6Scannell v Brewing Co., 178 Mass. 288, 59 N. E. 628.
7 Augusta Cooperage Co v. Parham, - Ark - , 213 S. W. 737; Reid v.
Wells, 56 S Car. 435. 34 S. E 401 [rehearing denied, 34 S E. 939]
8 England. Pollard v Bank, L R 6 Q B 623
Alabama. Nelson v. Holcomb, 187 Ala 119. 65 So. 773
California. White v. Costigan, 138 Cal 564. 72 Pac. 178
Maryland. Hawkins v. Bouic, 121 Md. 147, 88 Atl 126.
Ohio. Brown v. Brabham, 3 Ohio 275
West Virginia. Hanly v. Potts, 52 W Va 263, 43 S. E. 218.
9 Nelson v. Holcomb, 187 Ala. 119, 65 So. 773.
10 Hawkins v. Bouic, 121 Md. 147, 88 Atl 126.
If the interests of third parties are affected, the debtor and creditor can not, by mutual consent, change an appropriation of a payment which has once been made. The debtor and creditor can not change the application of a payment to a debt secured by a lien so as to prejudice other lienholders,13 or a subsequent purchaser of mortgaged premises who buys after the original application of such payment to the mortgage debt.14
If a member of a building and loan association borrows money and enters into a contract for the purchase of stock, payments which by mutual consent are to be applied in payment of the stock can not be appropriated subsequently by the debtor to the satisfaction of the mortgage debt.15 From its nature, this question usually arises on the insolvency of the association, when the borrowing members seek to have the amount paid on the stock applied to payment of the loan. In most of the cases the amount paid as premium and interest is applied to the amount of the loan, although the amount paid in on stock subscriptions is not thus credited. In some jurisdictions, however, the amount paid in as premiums is credited on the loan only as far as it is unearned at the time of insolvency.16
The injustice which frequently arises in a case of this sort, is not due solely to the law involving appropriation of payments, but to the fact that parties who enter into transactions of this sort frequently do not understand the distinction between paying the mortgage indebtedness and paying for the stock which it is hoped will eventually cancel the mortgage indebtedness, and to the fact that a contract, the performance of which is rendered impossible by the insolvency of the building and loan association, is made to defeat the rights of the borrowing member by applying the contract to transactions before insolvency, and refusing to apply it to transactions thereafter. For these reasons, in some jurisdictions, it is held that the insolvency of the association discharges the entire contract, including the application of payments already made; and that the amounts paid into the association are to be credited on the loan.17
11 Pond v. O'Connor, 70 Minn. 266, 73 N. W. 159, 248.
12 Hanly v. Potts, 52 W. Va. 263, 43 6. E. 218.
13 Green Bay Lumber Co. v. Thomas, 106 la. 420, 76 N. W. 740.
14 McCown v. Westbury, 52 S. Car. 421, 29 S. E. 663 [rehearing denied, 30 S. E. 142].
15 Alabama. Bell v. Southern Home Building ft Loan Association, 140 Ala. 371, 103 Am. St. Rep. 41, 37 So. 237.
California. Groover v. Pacific Coast Savings Society, 164 Cal. 67, 43 L. R. A. (N.S) 874, 127 Pac. 495.
Michigan. Home Savings ft Loan Association v. Mason, 127 Mich. 676, 87 N. W. 74.
Mississippi. People's Building ft Loan Association v. McPhilamy, 81 Miss. 61, 59 L. R. A. 743, 32 So. 1001.
North Dakota. Hale v. Cairns, 8 N. D. 145, 44 L. R. A. 261, 77 N. W. 1010.
Tennessee. Rogers v. Hargo, 92 Tenn. 35, 20 S. W. 430.
Wisconsin. Leahy v. National Building ft Loan Association, 100 Wis. 555, 69 Am. St. Rep. 945, 76 N. W. 625.
16 Preston v. Rockey, 185 N. Y. 186, 77 N. E. 1156.
17 Preston v. Woodland, 104 Md. 642, 06 Atl. 336; Strauss v. Carolina Interstate Building & Loan Association, 117
N. Car. 308, 30 L. R. A. 693, 23 8. E. 450; Burst v. Bryan, 44 8. Car. 121, 29 L. R. A. 127, 21 S. E. 537.